The reserve requirement is 5% for all banks. All banks will comply with this requirement. The Fed aims to increase the money supply by $40 billion to stimulate the economy.

1. If we assume that all banks will hold only the required reserves, what is the actual reserve ratio (R1)? How much is the money multiplier (MM1)? How much government bonds should the Fed purchase/sell in order to achieve the targeted goal of $40 billion increase in money supply?
2. If we assume that all banks will hold another 5% excess reserves, what is the actual reserve ratio (R2)? How much is the new money multiplier (MM2)? With this change, how much government bonds should the Fed purchase/sell in order to achieve the targeted goal of $40 billion increase in money supply?